2018 Tax Cuts & Jobs Act: Key Tax Law Changes

The 2018 Tax Cuts and Jobs Act (TCJA) made significant changes to our nation's tax laws. The following provides an overview of many of the important tax law changes for the average taxpayer: 

Standard Deduction:

The TCJA nearly doubled the standard deduction. For tax year 2019, the standard deduction is:

  • $12,200 for single filers and those who are married but filing separately;

  • $24,400 for those who are married and filing jointly; and

  • $18,350 for those who file as head of household.

Personal Exemptions:

The TCJA eliminated personal exemptions altogether. Thus, beginning in 2018, you cannot claim a personal exemption deduction for yourself, your spouse, or your dependents. This may impact decisions when deciding whether or not to itemized deductions and claim certain dependents.

Itemized Deductions:

Beginning in 2018, the following changes were made to itemized deductions:

  • Your itemized deductions are no longer limited if your adjusted gross income is over a certain amount.

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  • You can only deduct the portion of your medical and dental expenses that exceed 7.5% of your adjusted gross income.

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  • Your deduction for state and local income taxes, sales tax, and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if married filing separately).

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  • You can no longer claim a deduction for unreimbursed employee expenses unless you are an Armed Forces reservists, qualified performing artist, fee-basis state or local government official, or an employee with impairment-related work expenses.

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  • For debt incurred after December 15, 2017, the deduction for home mortgage interest is limited to interest on up to $750,000 ($375,000 if you are a married taxpayer filing a separate return) of home-acquisition debt. This new limit does not apply if you had a binding contract to close on a home after December 15, 2017, and closed on or before April 1, 2018. The prior limit would apply in that case.

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  • Beginning in 2018, you cannot deduct interest on a home equity loan or line of credit unless it is for buying, building or making substantial improvements to your home.

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  • The limit on charitable contributions of cash has increased from 50% to 60% of your adjusted gross income.

Child Tax Credit:

For 2019, the maximum credit is $2,000 per qualifying child. Up to $1,400 of the credit can be refundable for each qualifying child as the Additional Child Tax Credit. In addition, the income threshold at which the credit begins to phase out is now $200,000 ($400,000 if married filing jointly).

Credit for Other Dependents:

A new credit of up to $500 is available for each of your dependents, such as an adult child with a disability or aged parent, who does not qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).

Qualified Business Income Deduction:

Certain business owners can now deduct up to 20 percent of their qualified business income, plus 20 percent of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. The deduction is available regardless of whether you take the standard deduction or choose to itemized their deductions.

Education:

You can now use funds from your 529 education savings plan to pay for private K-12 educational expenses at secondary public, private or religious schools with a limit of $10,000 per student per year.

Alimony or Maintenance Payments:

Beginning in 2019, if you make alimony or maintenance payments, you will no longer be able to deduct them from your taxable income, and the recipient will no longer have to claim the payments as income. This went into effect for any divorce or separation agreement signed or modified after December 31, 2018.

Investment Fees:

You can no longer deduct investment fees from taxes. If a major part of your financial strategy includes investments, and you have substantial investor fees, you will be paying more in taxes.

Health Coverage Requirement:

Beginning in 2019, there is no longer a penalty for not maintaining minimum essential health coverage.

For more information, see the Taxpayer Advocate Service's Tax Reform Changes page and the Military OneSource's Key Tax Reforms page

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